REGULATORY ROLES OF MERGES AND ACQUISITION IN CANADA

TYPES OF MERGES AND ACQUISITION TRANSACTION

Takeover bids
Plan of arrangement
Amalgamations
Asset sales
Share sales
Restructurings
Going Private transactions

TAKEOVER BID REGULATION

Takeover bid is an offer which acquires voting or equity securities made to people in
Canadian jurisdiction, where securities subject to the bid plus securities beneficially
owned by bidder and its affiliates and joint actors constitute average 20% of the
outstanding securities of a class of securities.
Takeover bid regulations are subjected to the provinces but Canadian securities
regulators have harmonized takeover bid all over Canada under National Policy 62-203
and Multilateral Instrument 62-104 and, OSC Rule 62-504 and Ontario part XX, to the
Securities Act. Applicable laws depend where targets are incorporated.
ADVANTAGES OF A TAKEOVER BID

In a hostile transaction, there is no need of negotiation in any agreement with

targets board of directors.
No dissent and appraisal rights are given to target company shareholders. Albeit
dissent rights are available to non-tendering shareholders in a subsequent
acquisition or compulsory acquisition transaction by following a bid.
DISADVANTAGES OF A TAKEOVER BID

Higher risk
May lead to Squeeze-Out

ARRANGEMENT

Common alternative to takeover bids in negotiated Mergers & Acquisition

dealings.
Corporate re-organization of target under appendicle corporate governance law.
 Securities from any class of target may be exchanged for any other securities and
property, including cash. In addition, assets and subsidiaries, can be distributed
to shareholders and to other parties, and the order of all the steps to be effected
by the arrangement can be stated, which assists in tax planning.
Court will consider whether the arrangement is reasonable and fair.

COMPETITION ACT, INVESTMENT CANADA ACT AND OTHER

RESTRICTIONS ON FOREIGN OWNERSHIP

COMPETITION ACT (CANADA): Pre-merger Notification.

Pre-merger notification requirements applies in respect of any other merger that

meets certain voting and financial interest threshold limits, including an
acquisition of a foreign corporation with assets in Canada.
Pre-merger notification is made to Competition Bureau, which is headed by the
Commissioner of Competition.
COMPETITION ACT (CANADA): Substantive Provisions.
The competition Bureau tends to be focused on horizontal mergers between
competitors. Vertical mergers between the customer and a supplier very rarely raise
serious issues.

INVESTEMENT CANADA ACT

In general, any acquisition by non-Canadian control the business carried in

Canada is either modifiable or review-able under the Investment Canada Act
(ICA), Canada foreign investment review legislation.
Whether an acquisition is reviewable depends on the type of transaction used,
the value of Canadian business being acquired, whether the investor is
considered as a state-owned enterprise and the industry sector of the Canadian
business.
The ICA applies whether the business is currently controlled by Canadians or
also applies where a Canadian business is acquired indirectly by the acquisition
of a foreign corporation with a Canadian subsidiary.
Investments may be reviewed under the ICA on the basis of a national security
basis test and on a net benefit to Canada.

CANADIAN BIDCO
A foreign acquirer typically establishes a Canadian company (BIDCO) to effect a
Canadian acquisition for the below reasons:
 To permit the deduction in financing expenses against target income.
To allow the repatriation funds from Canada to the foreign parent free of
Canadian withholding tax.
To accommodate a step-up of the tax cost of targets non-depreciable capital
assets where it is available.
In Canada there is no tax consolidation within a group of corporate. For financing,
expenses to be deductible against the targets earnings, Bidco should be the borrower
and, during or after the acquisition, it should merge with the target of earnings. Further
structuring will be required where and when the target has a holding company
structure, with taxable income being earned in lower-tier entities.

SHAREHOLDER CONSIDERATIONS

The disposition of the shares to the acquirer is typically a taxable transaction to

the shareholder.
Tax-deferral can be provided to the selling shareholders, when the consideration
includes the equity.
No tax-deferral is available when the share of the Canadian target is exchanged
for shares of a foreign acquirer or where a subsidiary delivers the shares of its
parent as a consideration.
When the consideration would otherwise include in the publicly listed shares of a
foreign acquirer, tax deferral may be achieved through the use of an
exchangeable shares.
Bidco will be issuing treasury shares to the target shareholders on a tax-differed
basis that track to the publicly listed shares. Generally, they have liquidation
and dividend rights which match the listed parent share, and the provided voting
rights at the foreign parent. The shares may be exchanged by the holder in a one-
for-one basis for the listed parent shares. Generally, the tax will be deferred until
the Bidco shares are well exchanged for the listed parent shares.

MINORITY SHAREHOLDER PROTECTIONS

Acquisition transactions involving related parties such as controlling or significant
shareholders, board members or the senior management raise conflicts of interest and
concerns and may implicate additional corporate and securities law requirements.
Two Canadian securities regulators (Ontario and Quebec) have been established
specific rules applicable to:
Insider bids
Issuer bids
Certain types of related party transactions
Certain types of business combinations.
 These rules are set out in a Multilateral Instrument 61-101-Protection of Minority
Security Holders in a Special Transactions (MI 61-101) and are designed to afford the
certain protections to the shareholders where the conflicts of interest are present in the
transactions involving related parties.
ADDITIONAL CONSIDERATIONS
National Security Review
The ICA provides review of any investment where it could be injurious to national
security (and this is regardless of whether an acquisition of control can occurs).
National security is not defined in the regulations or in the ICA. Accordingly, the
federal government has wide latitude to the review and veto transaction, or seek
commitments, on national security grounds.
There is no process in Canada for submitting a transaction to the voluntary national
security review (unlike in the U.S. in the connection with Committee on Foreign
Investment in the United States (CFIUS)). However for an investment involving in an
acquisition of the control (regardless of whether a pre-closing review is required), an
investor may be obtain comfort on whether the national security review will be
conducted by submitting a notification at any time prior or within 30 days after
implementing an investment or by submitting an application for review, at any time
prior to implementing an investment. An indication that a national security review
process may be commenced must be sent by the reviewing Minister within 45 days of
submitting a notification or an application. There is no prescribed clearance process for
investments that do not involve any kind an acquisition of control. If such indication is
received, then the investor can be certain that a national security review will not be
undertaken.
Cabinet may take any measures it considers advisable to protect national security,
including directing the investor or not to implement the investment or permitting the
investment subject to the certain conditions.
SYNERGY
Synergy is the value that is added after merging two businesses. It can be achieved by
performing certain tasks or releasing products together that wouldnt be possible
independently. The concept is used world-wide in relation to merger and acquisitions.
The operational synergy is correlated to the operations of the combined organisation
and inclusive of economies of scale, rising pricing power and also higher growth
potential. The operational synergy can be divided into four parts:

Economies of scale
Greater pricing power
Combination of different functional strength
Growth surge in exisiting or new markets

The financial synergy are more emphasised on tax benefit, diversification, optimised
debt capacity and proper use of excessive cash.

REFERENCES
Merger & Acquisitions. (2016). Retrieved December 19, 2016, from
http://www.canadiansecuritieslaw.com/articles/mergers-acquisitions/
Canadian Public Company Mergers & Acquisitions. (2016). Retrieved December 19, 2016,
from https://www.osler.com/osler/media/Osler/reports/mergers-
acquisitions/Canadian-Public-Company-M-A-Guide-2016.pdf doi:Osler, Hoskin &
Harcourt

Damodaran , A. (2005, October). The Value of Synergy. Retrieved December 19, 2016,
from http://people.stern.nyu.edu/adamodar/pdfiles/papers/synergy.pdf